08 Aug 2006Working Paper Summaries

Managing Governments: Unilever in India and Turkey, 1950–1980

by Geoffrey G. Jones

During the postwar decades, consumer-products giant Unilever survived and even thrived in developing countries such as India and Turkey even as business conditions discouraged or drove away peer companies. Why? At least five factors explain Unilever's ability and willingness to persist in such developing countries. These factors may also explain why foreign direct investment shrank to low levels in these countries, and has remained low. Key concepts include:

Most important of all, Unilever became embedded in local business and political systems, functioning as a quasi-insider.
Unilever held first-mover advantage.
Unilever took a long-term investment horizon, believing that sooner or later as incomes rose people would want to consume its products.
A decentralized management structure gave Unilever flexibility in adjusting to the different environments of developing countries.
Localization of management provided a key competitive advantage.
Unilever's policy of staying outside party politics meant that it had few enemies.

Author Abstract

A noteworthy characteristic of the contemporary global economy is the uneven distribution of world foreign direct investment (FDI). While in the first global economy before 1929 most FDI was located in developing countries, currently three-quarters of world FDI is located in developed countries. Large emerging economies with little inward FDI include India and Turkey, despite the relaxation over the last two decades of the restrictions imposed on foreign firms between 1950 and 1980. This working paper explores why Unilever, the Anglo-Dutch consumer products company, was able to sustain large businesses in those countries even in the postwar era of hostility to foreign multinationals. It argues that the explanation is multi-causal. Unilever held first-mover advantages in both countries, but it was also prepared to accept low dividend remittances for years. It pursued flexible business strategies beyond its "core" business, even distributing condoms. It maintained a high standard of corporate ethics. It was effective at building contacts with local business and government elites, primarily through localization of management. In short, it took an extraordinary effort by a very large and experienced global corporation to survive the "era of confrontation" which deterred most other foreign firms, and which has left behind a legacy of distrust which helps to explain the continuing low levels of FDI in India and Turkey.